Weekly Wrap Up – India’s festive season brings light to the tunnel of dreaded recession

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The IMF forecast the global economy to expand further in the next two years, with India's GDP expected to rise by as much as 7.8 percent in 2019.

Two successive quarters of negative growth has sent India into a recession. However, concerns about the depth of India’s recession is slowly being replaced by optimism that a recovery is taking hold. A slew of indicators from car sales to services sector activity notched higher last month, while alternative data signal robust demand in an economy that’s primarily driven by domestic consumption.

India’s e-commerce festive sale season from October 15-November 15 this year delivered $ 8.3 billion (about Rs 58,000 crore) worth of gross sales for brands and sellers, up 65 per cent from $ 5 billion (Rs 35,000 crore) last year, according to the research firm RedSeer.

The improvements are expected to continue, with some analysts seeing the country returning to growth as soon as this quarter. The recovery from the lockdown has been stronger than expected, Reserve Bank of India Governor Shaktikanta Das said this week, signaling ahead of next week’s rate decision that policy makers will keep their supportive stance.

AGRICULTURE

The farm sector continues to be the bright spot, supported by a good monsoon season and subsidized inputs, the farmers’s agitation at the capital notwithstanding. The record sowing during the Kharif season is likely to boost farm income, and eventually, support the agricultural economy amid the pandemic.

Early indications show a healthy start to the procurement season that began in October. While the bumper sowing kept the farm sentiments resilient, the same had to be supplemented by active procurement of rice at a minimum support price (MSP) by the government agencies to support farmer’s income. Paddy, being one of the most important staple crops in India, has seen a continuous rise in MSP over the years, growing at a compounded annual growth rate of 6.8 per cent over the last decade.

It is this MSP that is at the crux of farmers’ agitation. After two days of pitched battles with the police in Haryana and Delhi, the farmers protesting against the new agriculture laws were finally allowed by the Centre to enter the national capital, thus paving the way for a possible peaceful resolution to the imbroglio. The Centre went on an all-out offensive to explain the benefits of the three farm legislations and that the existing mechanism of minimum support price (MSP) won’t be altered in any way.

METALS

The stalemate between steel producers and iron ore producers – each blaming the other for increased prices – continues. The government has hinted to ban iron ore exports in a bid to lower its prices for the benefit of the Indian steel sector. The domestic steel sector will, however, benefit from the government decision to keep away from the regional comprehensive economic partnership (RCEP), which is the world’s largest trading bloc covering nearly a third of the global GDP and population.

In a big boost to China, 15 nations inked the RCEP, which provides for progressively lower tariffs across many areas over the years. The RCEP is the world’s biggest trade pact involving 10 ASEAN countries along with China, Japan, Korea, New Zealand and Australia.

Over the past decade, domestic steel companies have been under severe margin pressure due to a swarm of cheap imports from RCEP members such as China, South Korea, Japan and Vietnam, and any multilateral free-trade agreements – particularly comprising China – could have posed more credit risks to domestic steel producers.  Keeping away from the RCEP is likely to help keep the credit dynamics of the domestic steel sector remain robust and resilient.

GOLD

After a spectacular rally this year, gold prices have come down from the all-time high level of over Rs 54,000 to near Rs 50,000 level. It closed the week at Rs 50,750 per 10 grams. Silver ruled at Rs 62,000 per kg.

Gold has been shining bright in the past three months. Due to the rally in gold prices, gold funds and gold ETFs have been receiving large inflows in the recent past. Gold has no doubt been one of the best assets classes with a return of 24 per cent annualised which renders other financial assets pale in comparison.

Gold has risen 50 per cent in the last one year to hover around a historic high of Rs 49,000 level in the domestic market. Even over a slightly longer term, gold has delivered 11.7 per cent annualised CAGR return over the last 12 years, 9.8 per cent for the last 10 years, 12.3 per cent for the last 5 years and 16.7 per cent for the last 3 years. 

ENERGY

Oil prices are set for a fourth consecutive weekly gain as positive vaccine news and hopes of an OPEC+ production cut extension boosts bullish sentiment. At the close of the week WTI crude was ruling $ 45.46 a barrel while Brent crude was at 48.06 a barrel.  OPEC+ is leaning towards a three-month extension, although not every member is on the same page. Oil prices are holding firm on expectations that the group will avoid letting the production cuts ease as scheduled in January.

In India, rising international oil rates broke a nearly two-month-long hiatus in price revision. Petrol and diesel prices were hiked all across the country successively in the past week. Petrol prices had been static since September 22, and diesel rates hadn’t changed since October 2.

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